An oligarch accused of financing pro-Russian separatists in eastern Ukraine appeared to continue moving millions of dollars through the global banking system with the help of a Cypriot financial services firm after he was placed under sanctions by western governments, the Guardian can reveal.
Konstantin Malofeyev, a banker whose business interests include the Kremlin-supporting Tsargrad media group, has been described by the US authorities as “one of the main sources of financing” for the promotion of Russian interests in eastern Ukraine and Crimea.
Known as the “Orthodox oligarch” because of his support for the Russian church, Malofeyev has described the current attack on Ukraine as a “holy war”. He was among the most high-profile individuals hit by sanctions after Russia’s annexation of Crimea, with the EU placing him under restrictions in July 2014 and the US in December of that year.
However, material seen by the Guardian and its reporting partner, the Organised Crime and Corruption Reporting Project, suggests that over the following three years he remained a client of the Cypriot accounting and offshore services firm MeritServus, whose officers appeared to help companies linked to Malofeyev move money and issue loans, including in US dollars.
MeritServus was last week placed under sanctions by the UK government after separate revelations from the Guardian about its role in moving funds for the former Chelsea football club owner Roman Abramovich.
The information, which has emerged from a cache of leaked documents known as the Oligarch files, will raise fresh concerns about financial controls in Cyprus, an EU member state that has for years facilitated the movement of Russian capital into Europe and beyond.
The firm appears to have continued helping with transactions, totalling an estimated $35m (£28m) and €2.5m (£2.2m), until it stopped acting for Malofeyev in the spring of 2017. It appears some of the work may have been in breach of EU sanctions and of Cypriot law, where non-compliance with sanctions is a criminal offence.
Malofeyev did not respond to a request for comment.
Prior to being placed under UK sanctions, MeritServus said it carried out normal services with proper permissions from regulators. It added that it was not involved in “money laundering or breaches of sanctions laws, nor has it facilitated, condoned or turned a blind eye to the same”.
MeritServus also said it had “inadvertently not identified” Malofeyev as being on the sanctions list. As soon as it became aware of the issue, in 2017, the firm says, it informed the Cypriot accountancy regulator, ICPAC, and the government department responsible for combating money laundering, Mokas, and “the position was resolved” with both bodies.
When first approached for comment, ICPAC said that after the matter came to its attention, it summoned MeritServus to its offices and requested full disclosure and for the firm to “take all necessary steps pursuant to the law”. It added that, from the material submitted, it ascertained MeritServus had not been “in violation” of UN or EU sanctions. In a subsequent statement, issued after MeritServus was itself placed under sanctions, the director of ICPAC said it would “evaluate the situation and consider if it would be warranted to take any action thereon”.
Mokas said it “has no legal mandate to implement or supervise the implementation of sanctions”.
A Cypriot government spokesperson said the country’s support for EU sanctions “was clear and unequivocal” and that cooperation between authorities in Cyprus and their London and Washington counterparts was “exemplary and mutually beneficial”. He added: “The individuals and entities listed in these latest sanctions have already been submitted to the competent authorities of the Republic of Cyprus and are being studied with due care.”
After founding the private equity firm Marshall Capital Partners, whose investors included the French insurance company Axa, Malofeyev poured his fortune into building a media empire whose Christian orthodox Tsargrad television station has become a propaganda arm of Vladimir Putin’s regime.
He reportedly employed the former FSB colonel Igor Girkin to provide security, and Girkin later became a paramilitary commander and then self-proclaimed minister of defence in the breakaway region of Donetsk in eastern Ukraine while another former Malofeyev associate was installed as governor.
Girkin was later convicted in connection with a missile attack on Malaysia Airlines flight MH17 over eastern Ukraine. The plane crash killed 298 people.
The Oligarch files is a cache of documents leaked from MeritServus, which is based in Limassol and was founded by the former Deloitte partner Demetris Ioannides.
MeritServus often acted as a nominee shareholder, using subsidiaries to hold shares in companies on behalf of their actual owners, in effect screening their assets from public view.
According to the files, Malofeyev appears to have become a client in 2005, the year he set up his private equity firm. He signed a “trust deed” allowing MeritServus to hold shares in a newly formed Cypriot company, Tinello Investments Ltd, on his behalf. The shares were held via a subsidiary called Finservus (Trustees) Ltd, which was used for this purpose with a number of clients.
According to documents seen by the Guardian Malofeyev was the beneficial owner of Tinello Investments during the 12 years he retained MeritServus’s services. It seems to have been used by the businessman to issue loans to different parts of his business.
Rather than ceasing to act for the oligarch after 2014, the firm appears to have helped him with the paperwork for several large transactions. For example, on 30 March 2015 Tinello transferred the rights to a $17m loan, originally issued to Isma LLC, a Russian company in his Tsargrad media group, to Aguilas Trading Ltd, a Seychelles company of which Malofeyev had previously been a director. On the same day, Tinello transferred rights to a $3.6m loan originally issued to Tureya LLC – another Russian subsidiary in Tsargrad – to Aguilas Trading.
MeritServus also drew up documents for the conversion of US-denominated debt to Russian rubles. On 31 July 2016, in a document, it appears to authorise the conversion into Russian currency of a $14m loan that Tinello had previously issued to SNM LLC, another Tsargrad group subsidiary.
As well as facilitating transactions in US dollars, MeritServus also did the same with euros. On 19 March 2015, a MeritServus representative signed an agreement to direct the Panama-registered Porthos Management Inc, also part of Malofeyev’s corporate group, to transfer rights to an existing €2.5m loan to Tinello.
Asked for her opinion on the transactions, Irene Kenyon, a former senior intelligence officer at the US Treasury, said: “If this company was issuing loans to Malofeyev as a sanctioned individual using US dollars then I would think they’d be in violation. Those who are allowing sanctioned individuals and entities to transfer money are opening a gate to access the global financial system.”
Christos Clerides, the president of the Cyprus Bar Association, said the transactions risked breaching Cypriot law, which requires every person or entity in the state to comply with all sanctions imposed by the UN and the EU.
Clerides said: “By providing services to a sanctioned individual, a corporate services provider like MeritServus would have been in breach of Cyprus’s 2016 law that was introduced to implement EU and UN sanctions.”
Breaches can incur penalties of up to two years’ imprisonment, a fine of €100,000 or both for individuals, and a fine of €300,000 for legal entities such as companies.
At least one of the transactions appears to have been carried out after April 2016, when the legislation came into force.
MeritServus appears to have decided to stop acting for Malofeyev in 2017. In May of that year, it handed back the shares it was holding for him on trust. The Cyprus company registry shows a form indicating Finservus had been replaced by Malofeyev as Tinello’s shareholder.
